In late August, the Biden administration announced a three-part plan to tackle the student loan crisis for low- to middle-income borrowers. Part of the plan includes forgiving up to $20,000 in debt for Pell Grant recipients and up to $10,000 for non-Pell Grant recipients. The relief is available to those with an individual income under $125,000.
Fenaba Addo, associate professor of public policy and a Carolina Population Center faculty fellow, studies debt and wealth inequality, with a focus on family and higher education.
Addo explores racial disparities in student debt in her upcoming book “A Dream Defaulted: The Student Loan Crisis Among Black Borrowers.” Co-authored with Dartmouth College associate professor of sociology Jason Houle, the book explains how the student loan crisis disproportionately affects Black borrowers and why rising student debt is a cause and consequence of social inequality in the United States.
The Well spoke with Addo about the disparities reflected in the debt crisis and what else could be done for the next set of students emerging from school with debt.
How does the student loan crisis disproportionally affect Black borrowers?
We find that Black borrowers are more likely to take on debt and accumulate more debt. That’s the accumulation phase and then in the repayment phase, they take a longer time to pay it off. The disparity grows over time because they are holding on to that debt. … Whereas their white counterparts are paying back that debt faster.
The debt disparity grows upon leaving school, with or without a degree. A lot of other great scholars have found that Black borrowers have higher rates of loan default and delinquency, but we also know that they’re entering into labor markets in which they are more likely to receive lower pay, have struggles with unemployment and underemployment and have lower career trajectories. All these factors come together and have made paying off the debt a more significant burden, especially if they’re starting out with a higher debt burden.
Will the recently announced $10,000 in student loan forgiveness help?
I think it’s a good start. I think for many of us who have been studying this for a while and have been acutely aware of the differences regarding the average debt burden of Black borrowers, we’re hoping for a little bit more. We’re hoping for a lot more, to be honest, because in some cases the average figures are upwards of $30-40,000 in debt.
But $10,000 is not nothing. It may not go a long way to alleviating a lot of the debt burden for Black borrowers. Still, there are many borrowers for whom their debts were at that lower end of the distribution, around $10,000. Once that gets discharged, then they’re done with paying back their debts. For a lot of the borrowers we spoke to for the book and people I’ve interacted with over the years, that can be a course correction. You’re no longer having to take some of your income and pay off debt. Instead, you’re making use of it towards consumption, savings, investing — whatever you see fit right now — and no longer carrying this burden into the future.
What do you see as potential pathways out of this student-debt crisis?
A lot of us who have been advocating for debt cancellation are pleasantly surprised by the announcement. Even if you’re not happy with the amount that is discharged, there are a lot of other provisions within the plan to help with repayment — specifically with trying to reduce the amount of interest accrual that debt holders have over time and reducing that amount of time. One example of that is the forgiveness of loan balances after 10 years of payments, when it used to be 20 years.
I think we also need to focus on the debt accumulation piece. What happens to the next set of students who come out and finish and have a lot of debt? How do we switch from loan-based aid to grant-based aid? How do we get our state legislatures to start investing and putting more money towards higher education? Those are the questions that we need to think about moving forward — in addition to making sure that the repayment plan is robust, helping people reduce their debts and eliminate them rather than carry them for the rest of their lives.